Tax Reform & Healthcare

Published: November 22, 2017

The Republican tax reform plans in the House and Senate could have a major impact on healthcare. On Nov. 13, the Congressional Budget Office (CBO) released their findings on what the legislation could mean long-term to deficits (an estimated $1.5 trillion more).

In their analysis, the CBO noted the Pay-As-You-Go Act of 2010 (PAYGO) requires an increase in the deficit be offset by cuts in spending ... for 2018, that requires eliminating $136 billion from programs, including an estimated $25 billion to Medicare (which can only be cut by a maximum 4 percent in any given year). The alternative would be for Congress to find another way to offset the deficit increase of their proposed tax reform, enact new legislation to overturn or amend PAYGO rules or not record the law's impact on the PAYGO scorecard.

Without Congressional action, the Office of Management and Budget (OMB) would have 15 days from the end of the session to issue a sequestration order to offset the $136 billion. While a waiver bill could be a work-around to massive programming cuts for everything from agricultural subsidies to healthcare, such an effort would require Democrats to vote with Republicans. That act of bipartisan cooperation is considered anything but a 'sure thing.' On the one hand, programs that are critically important to Democrats would be on the chopping block. On the other hand, Democrats have expressed anger and dismay over not being included in the tax reform negotiations and might opt to let Republicans 'own' the cuts.

An added twist is that PAYGO completely exempts some programs, like Social Security and a number of low income initiatives, from being touched through sequestration. In fact, CBO estimates after cutting the max $25 billion from Medicare, there wouldn't be enough eligible programs to make up the additional $111 billion in required cuts.

In the afternoon on Nov. 13, Sen. John Cornyn (R-Texas) said the Senate tax overhaul plan would include a repeal of the individual mandate, which is a foundational part of the Affordable Care Act and comes with a tax penalty for anyone not in compliance. The provision to strike the individual mandate was included in a revised version of the tax reform legislation released by Senate Finance Committee Chair Orin Hatch (R-Utah) later that evening. This latest twist is seen as a big risk/big reward move for Republicans. On the one hand, it could give them major tax reform and significant ACA repeal in one fell swoop ... or it could cause the tax plan to lose more than two senators because of the ACA inclusion, giving the GOP no major legislative wins going into midterms.

The announcement raised alarms among a number of groups and organizations.

Michele Johnson, executive director of the Tennessee Justice Center, responded to the announcement with a statement: "There they go again! Congressional leaders are again playing politics with Americans' healthcare. The tax bill adds $1.5 trillion to the national deficit, cuts Medicare for the elderly and healthcare for people with pre-existing conditions - all in order to give billions of dollars in tax breaks to the very wealthiest. This bill is a disaster for ordinary Americans."

Major industry organizations also weighed in as a coalition asking the individual mandate not be included in the tax package. A joint letter was sent to Senate and House leaders from the American Medical Association, American Hospital Association, America's Health Insurance Plans, American Academy of Family Physicians, Federation of American Hospitals and BlueCross BlueShield Association. A copy of the letter is available here.

On Nov. 15, Rep. Jim Cooper doubled down on his opposition to the current House Republican tax plan while noting details are still in flux. He highlighted several specific ways that he believes the plan would hurt Middle Tennesseans in Cheatham, Davidson and Dickson counties.

Cooper previously described the House Republican plan as a "real pain for Tennesseans" on Nov. 2, the day of its release. Several changes have been made since then. Today Rep. Cooper outlined new objections to the "Tax Cuts and Jobs Act," which is anticipated to add at least $1.4 trillion to America's debt.

Cooper said, details remain fluid as Republicans make last-minute changes, but the House is expected to vote on its tax plan tomorrow. Meanwhile, Senate Republicans are working through their own version, which currently includes a repeal of the Affordable Care Act's individual mandate. The House plan does not - for now - include the healthcare piece.

He continued, after passage in each chamber, the House and Senate must work out any differences between their bills and agree on a final bill before it can become law.

Based on 2014 tax data collected by the IRS Taxpayer Advocate Service, many residents of Rep. Cooper's congressional district claim deductions and tax credits now at risk under the House Republican plan as currently written:

94% of Middle Tennesseans filing a return claimed the personal exemption, which would be eliminated. This is currently worth $4,050 per family member and becomes more valuable as one's family grows in size. If the House Republican plan becomes law, a family of four currently claiming $16,200 would lose that entire exemption. The personal exemption was worth more than $2.5 billion to Middle Tennesseans filing a return in 2014.

39,000 Middle Tennessee students and families filing a return claimed the student loan interest deduction, which would be eliminated. Currently, eligible households can deduct up to $2,500 in student loan interest.

21% of Middle Tennesseans filing a return claimed the earned income tax credit - and would not see that credit expanded.

More than 16,000 Middle Tennesseans filing a return claimed the medical expense deduction for an average deduction of $9,800. The deduction would be eliminated.

22% of Middle Tennesseans filing a return claimed the state sales tax deduction for an average of $3,000. Seventy-nine percent of those Middle Tennesseans make less than $150,000. This deduction would be eliminated.

Additionally, according to 2016 data from the IRS, only 58 estates in the 5th Congressional District were subject to the estate tax, which would be repealed. The alternative minimum tax, which mostly hits Tennesseans making more than $200,000 per year, would also be repealed.

Other deductions would be impacted, Cooper said. For example, he explained, the mortgage interest deduction for homebuyers would be limited to $500,000, and the deduction for teachers to purchase classroom supplies would be eliminated. Meanwhile, officials at Tennessee universities have said the House Republican plan would hinder their ability to provide financial aid to students and finance research.

Under the GOP plan, the nonpartisan Tax Policy Center estimates that 24% of Americans would see a tax increase of nearly $2,100 by 2027.

"President Trump pledged 'a major, major' tax cut for American workers," Cooper said. "The reality is many Tennesseans will be hurt. We need tax reform that helps everyday Tennesseans."

The Council on Aging (COA) of Middle Tennessee hosted their 27th Annual Sage Awards on Oct. 29. With a belief that aging should be celebrated and embraced and that older adults have a lifetime of wisdom and experience to offer communities, the Sage Awards are presented each year to older adults who have made outstanding contributions to Middle Tennessee.